The SEBI has notified SEBI (Alternative Investment Funds) (Fourth Amendment) Regulations, 2021 to amend the existing SEBI (Alternative Investment Funds) Regulations, 2012 vide Notification No. SEBI/LAD-NRO/GN/2021/41 Dtd. 13th August, 2021 which shall come into force as on the date of its publication in the Official Gazette except for amendments to Regulation 12 which shall come into force on the 91st day from the date of publication of these regulations in the Official Gazette.

Sr. No. Amendment Comments
1 Substitution: Regulation 2(1)(i)

“debt fund” means an Alternative Investment Fund which invests primarily in debt securities of listed or unlisted investee companies or in securitized debt instruments as per the stated objectives of the Fund.

In the existing definition of debt fund, investment in debt other than debt funds was also included which is now removed and investment in securitized debt instruments is added in the ambit of debt fund.
2 Substitution: Regulation 2(1)(p)

“investable funds” means corpus of the scheme of Alternative Investment Fund net of expenditure for administration and management of the fund estimated for the tenure of the fund.

Explanation: For the purpose of this clause, the expression “tenure” means the duration of scheme from the day of its launch till last day of the term as specified in the fund documents.

By this amendment it is provided that, investable funds mean corpus of the scheme of AIF net of expenditure for administration and management of the fund estimated for the tenure of the fund which was earlier corpus of the AIF net of expenditure for administration and management of the fund.

The investable funds is now scheme of AIF specific.

3 Substitution: Regulation 2(1)(y)

“unit” means beneficial interest of the investors in the Alternative Investment Fund or a scheme of the Alternative Investment Fund and may be fully or partly paid up.

Explanation: For the purpose of this clause, partly paid-up units shall represent the portion of committed capital invested by the investor in Alternative Investment Fund or scheme of the Alternative Investment Fund.

The aim of this amendment is to exclude shares and partnership interests from the ambit of term unit and to provide that unit may be fully or partly paid up.
4 Insertion: Regulation 12(2)

after the words “the Board” and before the word “atleast”, the words and symbol “through a merchant banker,” shall be inserted.

By this amendment it is provided that the placement memorandum shall be filed with the Board through a merchant banker.
5 Substitution: Regulation 12(3)

The Board may communicate its comments, if any, to the merchant banker prior to launch of the scheme and the merchant banker shall ensure that the comments are incorporated in the placement memorandum prior to launch of the scheme.

To bring this sub-section in line with the amendments made in sub-section (2).
6 Insertion: Regulation 13(3)

before the words and symbol “Category III”, the words “Schemes of” shall be inserted.

Amended provision:

Schemes of Category III Alternative Investment Fund maybe open ended or close ended.

7 Substitution: Regulation 15(1)(f)

Un-invested portion of the investable funds and divestment proceeds pending distribution to investors may be invested in liquid mutual funds or bank deposits or other liquid assets of higher quality such as Treasury bills, Triparty Repo Dealing and Settlement, Commercial Papers, Certificates of Deposits, etc. till the deployment of funds as per the investment objective or the distribution of the funds to investors as per the terms of the fund documents, as applicable.

The intent of this amendment is to provide for investment of divestment proceeds pending distribution to investors in liquid mutual funds in addition to the existing un-invested portion of the investable funds.
8 Substitution, Insertion: Regulation 16(1)(a)

a. after the words “limited liability partnerships”, the word “or” shall be substituted with the symbol ,”.

b. after the words “sub category”, the words and symbol “or in units of Category II Alternative Investment Funds as specified in this regulation shall be inserted.

Self-explanatory.

Amended provision:

(a) Category I Alternative Investment Fund shall invest in investee companies, venture capital undertakings, special purpose vehicles, limited liability partnerships, in units of other Category I Alternative Investment Funds of the same sub category or in units of Category II Alternative Investment Funds as specified in this regulation.

9 Substitution: Regulation 16(2)(a)

at least seventy five percent of the investable funds shall be invested in unlisted equity shares or equity linked instruments of a venture capital undertaking or in companies listed or proposed to be listed on a SME exchange or SME segment of an exchange:

Provided that the investment conditions specified in clause (a) shall be achieved by the fund by the end of its life cycle.

The minimum investment as provided in Regulation 16(2)(a) has been increased from 2/3rd to 75%. Further is also provided that the investment conditions specified in clause (a) shall be achieved by the fund by the end of its life cycle.
10 Omission: Regulation 16(2)(b)
11 Substitution: Regulation 16(2)(c)

the words and symbols “Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 and the provisions of clause (a) and clause (b) of sub-regulation (2)” shall be substituted with the words and symbols “Chapter IX of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 and the provisions of clause (a) of sub-regulation (2)”.

12 Substitution: Regulation 16(2)(d)

such funds shall be exempt from sub-regulations (1) and (2) of regulation 3 and sub-regulation (1) of regulation 4 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 in respect of investment in companies listed on the SME exchange or SME segment of an exchange pursuant to due diligence of such companies subject to the following conditions:

(i) the fund shall disclose any trading in securities pursuant to such due diligence, within two trading days of such trading, to the stock exchanges where the investee company is listed;

(ii) such investment shall be locked in for a period of one year from the date of investment.

Self-explanatory.
13 Insertion: Regulation 16(3)(a)

after the words “of an exchange”, the words and symbol “or in units of Category II Alternative Investment Funds which invest primarily in such venture capital undertakings or investee companies shall be inserted.

Self-explanatory.

Amended provision:

(a) atleast seventy five percent of the investable funds shall be invested in unlisted securities or partnership interest of venture capital undertakings or investee companies which are SMEs or in companies listed or proposed to be listed on SME exchange or SME segment of an exchange or in units of Category II Alternative Investment Funds which invest primarily in such venture capital undertakings or investee companies.

14 Substitution: Regulation 16(3)(b)

the words and symbols “Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 shall be substituted with the words and symbols

“Chapter IX of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018”.

15 Substitution: Regulation 16(3)(c)

such funds shall be exempt from sub-regulations (1) and (2) of regulation 3 and sub-regulation (1) of regulation 4 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 in respect of investment in companies listed on the SME exchange or SME segment of an exchange pursuant to due diligence of such companies subject to the following conditions:

(i) the fund shall disclose any trading in securities pursuant to such due diligence, within two trading days of such trading, to the stock exchanges where the investee company is listed;

(ii) such investment shall be locked in for a period of one year from the date of investment.

Self-explanatory.
16 Insertion: after first proviso to Regulation 16(4)(b)

Provided further that the minimum amount of grant shall not apply to accredited investors:

The minimum amount of grant of ₹25 Lakhs stipulated for Category I AIFs – Social Venture Funds shall not apply to grants received from Accredited Investors.
17 Insertion: Regulation 16(5)(a)

after the words “infrastructure projects”, the words and symbol “or in units of Category II Alternative Investment Funds which invest primarily in such venture capital undertakings or investee companies or special purpose vehicles shall be inserted.

Self-explanatory.

Amended provision:

(a) atleast  seventy  five  percent  of  the investable  funds shall  be  invested  in  unlisted securities  or  units  or  partnership  interest  of  venture  capital  undertaking  or  investee companies or special purpose vehicles, which are engaged in or formed for the purpose of operating, developing or holding infrastructure projects or in units of Category II Alternative Investment Funds which invest primarily in such venture capital undertakings or investee companies or special purpose vehicles.

18 Substitution: Regulation 17(e)

the words and symbols “Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 shall be substituted with the words and symbols

“Chapter IX of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018”.

19 Substitution: Regulation 17(f)

Category II Alternative Investment Funds shall be exempt from sub-regulations (1) and (2) of regulation 3 and sub-regulation (1) of regulation 4 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 in respect of investment in companies listed on the SME exchange or SME segment of an exchange pursuant to due diligence of such companies subject to the following conditions:

(i) the fund shall disclose any trading in securities pursuant to such due diligence, within two trading days of such trading, to the stock exchanges where the investee company is listed;

(ii) such investment shall be locked in for a period of one year from the date of investment.

Self-explanatory.

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SECURITIES AND EXCHANGE BOARD OF INDIA
NOTIFICATION

Mumbai, the 13th August, 2021

SECURITIES AND EXCHANGE BOARD OF INDIA (ALTERNATIVE INVESTMENT FUNDS) (FOURTH AMENDMENT) REGULATIONS, 2021

No. SEBI/LAD-NRO/GN/2021/41.—In exercise of the powers conferred by sub-section (1) of Section 30 read with sub-section (1) of Section 11, clause (ba) and clause (c) of sub-section (2) of section 11 and sub-section (1) and (1B) of Section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations to further amend the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 namely:–

1. These regulations may be called the Securities and Exchange Board of India (Alternative Investment Funds) (Fourth Amendment) Regulations, 2021.

2. They shall come into force on the date of their publication in the Official Gazette:

Provided that the amendments to regulation 12 shall come into force on the ninety first day from the date of publication of these regulations in the Official Gazette.

3. In the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012,-

I. In sub-regulation (1) of regulation 2,

i. clause (i), shall be substituted with the following, namely, –

“(i) “debt fund” means an Alternative Investment Fund which invests primarily in debt securities of listed or unlisted investee companies or in securitized debt instruments as per the stated objectives of the Fund;”

ii. clause (p) shall be substituted with the following, namely, –

“(p) “investable funds” means corpus of the scheme of Alternative Investment Fund net of expenditure for administration and management of the fund estimated for the tenure of the fund.

Explanation: For the purpose of this clause, the expression “tenure” means the duration of scheme from the day of its launch till last day of the term as specified in the fund documents;”

iii. clause (y) shall be substituted with the following, namely, –

“(y)“unit” means beneficial interest of the investors in the Alternative Investment Fund or a scheme of the Alternative Investment Fund and may be fully or partly paid up.

Explanation: For the purpose of this clause, partly paid up units shall represent the portion of committed capital invested by the investor in Alternative Investment Fund or scheme of the Alternative Investment Fund;”

II. In regulation 12,

i. in sub-regulation (2), after the words “the Board” and before the word “at least”, the words and symbol “through a merchant banker,” shall be inserted.

ii. sub-regulation (3) shall be substituted with the following, namely, –

“(3) The Board may communicate its comments, if any, to the merchant banker prior to launch of the scheme and the merchant banker shall ensure that the comments are incorporated in the placement memorandum prior to launch of the scheme.”

III. In sub-regulation (3) of regulation 13, before the words and symbol “Category III”, the words “Schemes of” shall be inserted.

IV. In sub-regulation (1) of regulation 15, clause (f) shall be substituted with the following, namely, –

“(f) Un-invested portion of the investable funds and divestment proceeds pending distribution to investors may be invested in liquid mutual funds or bank deposits or other liquid assets of higher quality such as Treasury bills, Triparty Repo Dealing and Settlement, Commercial Papers, Certificates of Deposits, etc. till the deployment of funds as per the investment objective or the distribution of the funds to investors as per the terms of the fund documents, as applicable;”

V. In regulation 16,

i. in clause (a) of sub-regulation (1),

a. after the words “limited liability partnerships”, the word “or” shall be substituted with the symbol “,”

b. after the words “sub category”, the words and symbol “or in units of Category II Alternative Investment Funds as specified in this regulation” shall be inserted.

ii. clause (a) of sub-regulation (2) shall be substituted with the following, namely, –

“(a) at least seventy five percent of the investable funds shall be invested in unlisted equity shares or equity linked instruments of a venture capital undertaking or in companies listed or proposed to be listed on a SME exchange or SME segment of an exchange:

Provided that the investment conditions specified in clause (a) shall be achieved by the fund by the end of its life cycle.”

iii. clause (b) of sub-regulation (2) shall be omitted.

iv. in clause (c) of sub-regulation (2), the words and symbols “Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 and the provisions of clause (a) and clause (b) of sub-regulation (2)” shall be substituted with the words and symbols “Chapter IX of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 and the provisions of clause (a) of sub-regulation (2)”.

v. clause (d) of sub-regulation (2) shall be substituted with the following, namely, –

“(d) such funds shall be exempt from sub-regulations (1) and (2) of regulation 3 and sub-regulation (1) of regulation 4 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 in respect of investment in companies listed on the SME exchange or SME segment of an exchange pursuant to due diligence of such companies subject to the following conditions:

(i) the fund shall disclose any trading in securities pursuant to such duediligence, within two trading days of such trading, to the stock exchanges where the investee company is listed;

(ii) such investment shall be locked in for a period of one year from the date of investment.”

vi. in clause (a) of sub-regulation (3), after the words “of an exchange”, the words and symbol “or in units of Category II Alternative Investment Funds which invest primarily in such venture capital undertakings or investee companies” shall be inserted.

vii. In clause (b) of sub-regulation (3), the words and symbols “Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009” shall be substituted with the words and symbols “Chapter IX of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018”.

viii. clause (c) of sub-regulation (3) shall be substituted with the following, namely, –

“(c) such funds shall be exempt from sub-regulations (1) and (2) of regulation 3 and sub-regulation (1) of regulation 4 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 in respect of investment in companies listed on the SME exchange or SME segment of an exchange pursuant to due diligence of such companies subject to the following conditions:

(i) the fund shall disclose any trading in securities pursuant to such duediligence, within two trading days of such trading, to the stock exchanges where the investee company is listed;

(ii) such investment shall be locked in for a period of one year from the date of investment.”

ix. After the first proviso to clause (b) of sub-regulation 4, the following proviso shall be inserted, namely, –

“Provided further that the minimum amount of grant shall not apply to accredited investors:”

x. in clause (a) of sub-regulation (5), after the words “infrastructure projects”, the words and symbol “or in units of Category II Alternative Investment Funds which invest primarily in such venture capital undertakings or investee companies or special purpose vehicles” shall be inserted.

VI. In regulation 17,

i. in clause (e), the words and symbols “Chapter XB of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009” shall be substituted with the words and symbols “Chapter IX of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018”.

ii. clause (f) shall be substituted with the following, namely,-

“(f) Category II Alternative Investment Funds shall be exempt from subregulations (1) and (2) of regulation 3 and sub-regulation (1) of regulation 4 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 in respect of investment in companies listed on the SME exchange or SME segment of an exchange pursuant to due diligence of such companies subject to the following conditions:

(i) the fund shall disclose any trading in securities pursuant to such duediligence, within two trading days of such trading, to the stock exchanges where the investee company is listed;

(ii) such investment shall be locked in for a period of one year from the date of investment.”

AJAY TYAGI, Chairman
[ADVT.-III/4/Exty./198/2021-22]

Footnote:

1. The Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 were published in the Gazette of India on May 21, 2012 vide No. SEBI/LAD-NRO/GN/2012-13/04/11262.

2. The Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 were subsequently amended on, –

(1) 16th September, 2013 by Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2013 vide No. LAD-NRO/GN/2013-14/24/6573.

(2) 23rd May, 2014 by Securities and Exchange Board of India (Payment of Fees) (Amendment) Regulations, 2014 vide No. LAD-NRO/GN/2014-15/03/1089.

(3) 26th September, 2014 by Securities and Exchange Board of India (Real Estate Investment Trusts) Regulations, 2014 vide No. LAD-NRO/GN/2014-15/11/1576.

(4) 14th August, 2015 by Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2015 vide No. SEBI/LAD-NRO/GN/2015-16/011.

(5) 4th January, 2017 by Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2016 vide No. SEBI/LAD/NRO/GN/2016-17/026.

(6) 6th March, 2017 by Securities and Exchange Board of India (Payment of Fees and Mode of Payment) (Amendment) Regulations, 2017 vide No. SEBI/LAD/NRO/GN/2016-17/037.

(7) 1st June, 2018 by Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2018 vide No. SEBI/LAD/NRO/GN/2018/19.

(8) 10th May, 2019 by Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2019 vide No. SEBI/LAD/NRO/GN/2019/16.

(9) On 17th April, 2020 by the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2020 vide No. SEBI/LAD-NRO/GN/2020/10.

(10) 19th October, 2020 by the Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2020 vide No. SEBI/LAD/NRO/GN/2020/37.

(11) 8th January, 2021 by the Securities and Exchange Board of India (Alternative Investment Funds) (Amendment) Regulations, 2021 vide  No. SEBI/LAD/NRO/GN/2021/01.

(12) 5th May, 2021 by the Securities and Exchange Board of India (Alternative Investment Funds) (Second Amendment) Regulations, 2021 vide No SEBI/LAD-NRO/GN/2021/21

(13) 3rd August, 2021 by the Securities and Exchange Board of India (Regulatory Sandbox) (Amendment) Regulations, 2021 vide No. SEBI/LAD-NRO/GN/2021/30.

(14) 3rd August, 2021 by the Securities and Exchange Board of India (Alternative Investment Funds) (Third Amendment) Regulations, 2021 vide No SEBI/LAD-NRO/GN/2021/33.

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Disclaimer: The author is based in Jabalpur and is a Practicing Company Secretary dealing in Corporate, Legal & Taxation services. The information contained in this write up, as provided by the author, is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Author recommends that professional advice is sought before taking any action on specific issues. The author can also be reached at [email protected]

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